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Top 5 grocery trends

Facing changing consumer preferences, customers spending more dollars at supercenters and restaurants, and lower-price alternatives such as Aldi expanding to new markets, grocers are quickly changing what they sell and how they sell it. Some grocers are localizing assortments and investing in healthy options for their customers, while others are taking actions to fight competition from new entrants, and empowering their employees to help with the effort.

For each new initiative coming down the pike, grocers will seek better, more efficient ways to uncover which ones drive profits, and how to design optimal rollout strategies. Executives will also leverage new data sources to learn more about their customers, how to build their baskets, and the best ways to reach new customer segments. Based on APT's work with nearly half of the top U.S. retailers and many brands globally, here are the top grocery trends for the year.

1. Grocers go local

To win spend and cut

spoilage, grocers are continuing to localize their assortments. Houchens, for example, is introducing local products such as Kentucky's Bourbon Barrel Foods, and Key Food Stores Co-Op is investing in better Halal offerings for their community. Retailers are also redefining assortment as a means to improve local appeal. CVS is better targeting Latino shoppers with items like snacks imported from Mexico, and Northgate González Markets offers bilingual health labels to communicate the value of their products and help consumers make healthier decisions.

While there's a lot of hype around localization, offering niche products often requires taking space from traditional staple items, which guarantees lost sales if grocers don't get the right products in the right places. In smaller urban stores, the focus on making the most of every inch of shelf space is even more critical. By experimenting with assortment changes in a subset of stores, and comparing those stores to a very similar baseline of stores without assortment changes, executives can look past the hype and understand what's truly driving profits for their chain. This process of experimentation is not only important for assortment changes, but also across the organization to identify new profit opportunities.

2. Healthy ideas sprout up

Healthy food and beverage options continue to drive traffic at leading grocery chains, and are compelling grocers to find new ways to own the healthy market. H-E-B is elevating its healthy packaged offerings by introducing clear labels for products made without high-fructose corn syrup. ALDI is expanding its fresh offerings, and removing junk foods from the checkout line.

Meanwhile, executives are focusing on their produce departments too. Key programs include switching to smaller, more frequent deliveries to minimize spoilage, and training employees on the best ways to keep fresh food displays looking nice. Some grocers are lowering prices on produce to drive traffic and decrease spoilage, or introducing a lower-priced tier of produce in the form of "ugly produce"-blemished fruit that's still good to eat-to reduce waste, as Loblaws did with its Naturally Imperfect line.

There are endless strategies for grocers to improve their healthy offerings, but the best strategy will likely vary for each grocer. What's the impact of removing some junk food options from stores? Is it profitable to invest in high-end healthy offerings, or change shipping and pricing strategies to refine existing options? How does the optimal strategy vary by store? Amidst the uncertainty of the best plan, one truth remains - grocers who test these risky changes before making large investments will quickly find out how to fine tune their fresh food ideas to generate maximum impact.

3. Restaurants up the ante

The grocery game is changing as restaurants increase their share of key customer groups like Millennials and new meal delivery services offer alternatives to making trips to the store. In response to these challenges, grocers are racing to lock in baskets before it's too late. To reclaim share from these new players, some grocers are hoping to drive trips by making their stores destination spots, including Wegmans with its in-store pubs and TOPS Markets with its expanded café seating. Other grocers, such as Giant and Sainsbury's, are answering the challenge of delivery services by offering their own ready-to-cook meal kits and food delivery in under an hour.

With the large cost of getting these new offerings off the ground, grocers need to carefully evaluate the ROI of each offering and prioritize rollout in the locations that will pay off most quickly. At the same time, executives will need to increasingly turn to third-party data sources, such as credit card spend, to better understand their customers' shopping habits both inside and outside the supermarket to inform programs going forward.

4. Circulars join the digital movement

We don't expect the circular to disappear completely, but over time we'll continue to see it expand to the web and to mobile apps. Wegmans, for example, introduced its mobile app to allow customers to clip virtual coupons, find product locations in stores, and add recipes to their shopping list. Even small players, such as Americana Grocery, are introducing apps to share weekly offers, and even allowing customers to shop and view recipes via their app.

The shift from print to digital is causing executives to try switching some markets to digital, and using it as leverage to determine which markets across the network can make the jump without losing traffic. As these changes help to revitalize the focus on circular design overall, grocers are also looking to optimize the length, product placement, and offer types within their flyers based on which elements drive the most incremental trips and add-on sales in each market, for each customer segment.

5. Grocers profit from investing in people

Robots may be delivering groceries, but they're not running stores yet. As labor continues to be a major expense for grocers, executives are taking more steps to help their employees contribute to the bottom line. Employees at the Murray's Cheese counter in Kroger stores, for example, receive extensive training to help customers select the right choices. Kroger is also investing in a culinary facility to improve its freshly prepared foods, while many other grocers are analyzing initiatives that run the gamut of workforce programs-including introducing programs that free up employee time for more specialized roles, like at California Fresh Market, where customers in San Luis Obispo can check out with a mobile app that eliminates the need for cashiers altogether.

As grocers maximize their staffing investments, and reduce turnover that can lead to inefficiencies, executives are beginning to turn to "people analytics" to answer key questions, including: Which of our training programs have the greatest impact? How does scheduling impact employee engagement and retention? What is the right mix of specialists and generalists? What staffing mix is the most productive? And, which attributes distinguish our most effective managers from others? As the year progresses, more grocers will be looking to people analytics to optimize their workforces.

These trends will shape the grocery industry in 2017. As grocers move towards more innovative business initiatives, they will need to carefully consider the short- and long-term impacts of each business decision. Each of these trends has the opportunity to make or break a grocer if implemented hastily-only diligently testing new ideas can determine which ones work in each chain.